The American crisis threatens the reputation of Brazilian billionaires

Jorge Paulo Lemann, Marcel Telles and Carlos Alberto “Beto” Sicupira – the main shareholders of Lojas Americanas – form the trio of Brazilian investors most respected and admired by the “market”.

Together since the 1970s, they have been part of the creation of the financial market in Brazil, with Banco Garantia. And they are recognized for having successfully undertaken internationally, through AB InBev, Burger King and Kraft Heinz.

Having unquestionable success in a complicated economic environment like Brazil’s is a sign of courage in taking risks and competence, says a businessman close to the trio, who spoke on condition of anonymity.

He describes Jorge Paulo Lemann as “brilliant”, Marcel Telles as “great with people” and Beto Sicupira as “super aggressive”.

The trajectory of nearly five decades, marked by pioneering spirit, had its flaws, but never had the market questioned the business practices and reputation of the three as much as now, due to the accounting scandal in which they were no longer registered 20 billion R$ as debts in the US budget.

The biggest evidence of the company and the trio’s loss of credibility was that the banks were unwilling to negotiate the issue or wait for the company to investigate what it called “inconsistencies.” Convinced that there was fraud, the creditors are already preparing a criminal action against the trio.

With no credit in the market, Americanas entered judicial recovery on Thursday (19), but for some years, asset managers had raised questions about its liability.

According to the specialists interviewed, the main clues were that financial expenses “didn’t add up”, the Americans did not generate liquidity and almost every year they needed a capital increase.

But no one delved into the discussion, in part due to the reputation and wealth of the trio of billionaire partners, says one of the managers, who declined to be identified. In the perception of the market, it would be difficult for them to overlook major failures, but if they did occur, they would have more than enough resources to fix the problem.

Lemann, 83, is from Rio de Janeiro, the son of a Brazilian mother and a Swiss father, and dedicated his youth to sports like surfing, spearfishing and tennis – he even competed professionally. He has lived in Switzerland for two decades and is a neighbor of the star of this sport, Roger Federer.

During his trips to Brazil he dedicated himself to dialogue with young people and to visiting poor communities assisted by the foundations he created, Estudar and Lemann. However, friends say he is not as simple or humble as he seems to appear, and has a vain side. In the anecdote about the billionaire, one of those vanities relates that he “teached” his neighbor Federer how to improve his backhand shot in 2016.

Influenced by a cousin who had studied at Harvard, Lemann – now the richest man in Brazil – also decided to take an economics course at the American university in 1957, a time when he did not receive as many Brazilians as today.

It is there that he comes into contact with the theses that permeate his activity: meritocracy, which consists of promoting employees based on their performance; and the “partnership” (association) system, which offers participation in the company to exceptional employees.

These guidelines make sense, but in practice can end up becoming too much pressure for employees to set too many goals. They can also lead to a short-term view of the business, which benefits investors and managers but can compromise the longevity of companies.

In 1963, having already returned to Brazil, Lemann joined Invesco, a company that granted credit, like a commercial bank and which failed because “it lent more money than it received”, according to the book “Sonho Grande”, which tells the story of the trio.

The entrepreneur looks for new partners and, in 1967, at the age of 28, buys a brokerage company, which he transforms into Garantia, an investment bank that innovates and dominates the market from the 70s onwards, where he meets his partner.

Telles, 72, started out at the bank in 1972 and was soon head of the trading desk. Graduated in economics, he had the profile that Garantia was looking for: young, smart and with a lot of ambition to earn. Sicupira, 74, arrived in 1973, introduced to Lemann by another member of the bank.

The fact that they both practiced spearfishing brought them together – years later, Telles also mastered the sport. Quickly, they became Garantia’s closest partners to Lemann and consolidated the partnership that lasts to this day.

In 1982 Telles left Garantia to head Lojas Americanas, the bank’s first acquisition. In 1993 he moved to GP Investimentos, the first Brazilian private equity fund, created by the trio of entrepreneurs.

In 1994 it was Sicupira’s turn to lead the newly acquired Brahma brewery. Lemann always remained faithful to the strategy and never went to work in companies.

In 1998, Garantia sold: it was heavily exposed to foreign debt securities during the Asian and Russian crises. Some attribute the collapse to the departure of key partners – that year Lemann died of a heart attack.

Lacking credibility, Garantia ended up being sold to Credit Suisse for $675 million. The trio no longer invested in the financial sector and began building businesses out of poorly managed companies with the potential to grow after restructuring. Then came the 3G brand, the name of the vehicle they created to invest in companies.

In 1999, Brahma bought its rival Antarctica, became Ambev and in 2004 was bought by the Belgian Interbrew. Even with fewer shares, the Brazilians dominated the management of the company and, four years later, in the trio’s boldest move, were left with American Anheuser-Busch (AB), maker of the world’s best-selling beer, Budweiser . AB Inbev continues to be a leader in this global market.

International investment continued in 2010, with worldwide control of the fast food chain Burger King. In 2013, they bought the American food company Heinz, partnered with American mega-investor Warren Buffett, whom Lemann met in 1998, when both were on the board of directors of Gillette.

In 2015, Heinz merged with Kraft, in a move that proved unsuccessful, as Lemann has already acknowledged. 3G has reduced its stake in this business.

In those years when they made their dream of becoming leaders of global companies a reality, the trio gained worldwide fame and earned a place on Forbes magazine’s list of the richest men. In 2022, Lemann (BRL 72 billion), Telles (BRL 48 billion) and Sicupira (BRL 39.85 billion) appeared in first, third and fourth place in the list of the largest Brazilian fortunes. The three devoted themselves to philanthropy and actions in support of education.

The trio rarely give interviews and maintain a discreet and unostentatious profile, another characteristic contributed to the companies they run. The order is always to promote cost and expense cuts and remove benefits from above, which also accelerates quick results.

Rumors with minority shareholders, questions about the transparency of investee companies and accounting problems, now in the spotlight, have grown over time and apparently exhausted the patience of investors and creditors.

América Latina Logística (ALL), invested through GP, was in bad shape in 2016 when it was acquired by Rumo: after the deal, the company re-released three years of financial statements. Kraft Heinz was questioned and fined by the SEC (the United States Securities and Exchange Commission) for accounting misconduct. In both companies, the problems were in the supplier line, as well as in the Americans.

The news that there are problems in the retailer’s balance sheet comes months after a corporate restructuring that led to the trio spiraling out of control, reducing the stake to 30%. The three have been the controllers for virtually the entirety of the accounting scandal, and still have the majority on the Americanas board — Sicupira is on the board.

What is said among financial planners is that no one has done anything in Americanas without consulting the trio.

The creditor banks want the billionaires to take responsibility for the crisis and put up between R$10 and 15 billion to save the company. In response, the trio waved BRL 6 billion and showed no hurry. In the judicial recovery they pledged to inject resources into the company to keep it running, but did not specify how much.

The point is that, from what is known so far, the main effect of the accounting maneuver has been to inflate the company’s profits. With this device, Americanas provided only average results; without him, not even that.

Investors are now asking whether they plan to “wreck money” by injecting new resources into the company to maintain its reputation or legacy, which would be the main sign of Americanas’ profitability. The outcome of the case will also be closely monitored by international investors.

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